Why these fintech shares have been crushed this month

After being amongst the best performers in 2018, several fintech shares have been among the worst performers over the last couple of weeks. For example, the HUB24 Ltd (ASX: HUB) share price is up 19% year-to-date but has fallen almost 21% in the last two weeks. It’s a similar story for industry peers Netwealth Group Ltd (ASX: NWL) and Praemium Ltd (ASX: PPS) as well. These two investment platform providers are up 4% and 21% this year, but down 22% and 17%, respectively during the last couple of weeks. What’s happened? The initial rise in their respective shares was caused…

After being amongst the best performers in 2018, several fintech shares have been among the worst performers over the last couple of weeks.

For example, the HUB24 Ltd(ASX: HUB) share price is up 19% year-to-date but has fallen almost 21% in the last two weeks.

It’s a similar story for industry peers Netwealth Group Ltd(ASX: NWL) and Praemium Ltd(ASX: PPS) as well.

These two investment platform providers are up 4% and 21% this year, but down 22% and 17%, respectively during the last couple of weeks.

What’s happened?

The initial rise in their respective shares was caused by the impressive growth of their funds under administration (FUA). Both HUB24 and Praemium recently reported FUA of greater than $8 billion, up significantly year-on-year.

And Netwealth recently reported a $1.95 billion increase in FUA during the fourth quarter, taking its FUA to just under $18 billion.

So why are they crashing lower?

HUB24, Netwealth, and Praemium have come under significant pressure amid concerns that a price war is about to break out and weigh heavily on margins.

One example of this is Westpac Banking Corp(ASX: WBC) with its BT Financial Group business.

Last week the company announced significant cuts to platform pricing and the launch of BT Open Services.

According to BT CEO Brad Cooper, the company made the move as part of its commitment to making wealth management simpler and more transparent for advisers and customers.

This will see new customers automatically access its BT Panorama Investments and BT Panorama Super platforms at a new simple and transparent price of a 0.15% per annum asset-based administration fee across their platform assets, capped once their assets reach $1 million, and a flat account fee of $540 per annum.

Further intensifying the price war BT has launched BT Panorama Compact, costing $180 per annum for each account and 0.15% per annum asset-based administration fee, capped once their assets reach $1 million. BT Panorama Compact provides all the benefits of BT Panorama, with a simpler investment menu.

And finally, a new online adviser services hub, BT Open Services, will be available to both self-licensed advisers and dealer groups in October.

The company advised that the service “will assist advisers and dealer groups to continue to run professional, compliant and client focused advice businesses in a cost-effective way. The hub will be available to any adviser irrespective of whether they have a relationship with BT platforms.”

What’s next?

With BT Financial Group advising that this new pricing structure would have impacted its full year revenue by approximately $70 million and cash earnings by $50 million in FY 2017, it isn’t surprising that investors are concerned over the impact of a price war in the industry.

Especially given how much future growth had been built into the valuations of these fintech stars.

While I am bullish on the long-term futures of the fintech shares listed above, it may be prudent to wait and see how the industry fares in the coming months before picking up shares.

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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